【正文】 inefficient as the number of tasks increase 3. Bulk discounts can no longer be utilized. Limited availability of inputs may cause price to rise. 169。2020 Pearson Education, Inc. Chapter 7 60 Long Run Versus Short Run Cost Curves ?In the long run: ?Firms experience increasing and decreasing returns to scale and therefore longrun average cost is “U” shaped. ?Source of Ushape is due to returns to scale instead of decreasing returns to scale like the shortrun curve ?Longrun marginal cost curve measures the change in longrun total costs as output is increased by 1 unit 169。2020 Pearson Education, Inc. Chapter 7 56 Long Run Versus Short Run Cost Curves ?In the short run, some costs are fixed ?In the long run, firm can change anything including plant size ?Can produce at a lower average cost in long run than in short run ?Capital and labor are both flexible ?We can show this by holding capital fixed in the short run and flexible in long run 169。2020 Pearson Education, Inc. Chapter 7 52 Cost in the Long Run ?Cost minimization with Varying Output Levels ?For each level of output, there is an isocost curve showing minimum cost for that output level ?A firm’s expansion path shows the minimum cost binations of labor and capital at each level of output ?Slope equals ?K/?L 169。2020 Pearson Education, Inc. Chapter 7 48 Input Substitution When an Input Price Change C2 The new bination of K and L is used to produce Q1. Combination B is used in place of bination A. K2 L2 B C1 K1 L1 A Q1 If the price of labor rises, the isocost curve bees steeper due to the change in the slope (w/L). Labor per year Capital per year 169。2020 Pearson Education, Inc. Chapter 7 44 Cost in the Long Run ?Rewriting C as an equation for a straight line: ?K = C/r (w/r)L ?Slope of the isocost: ? (w/r) is the ratio of the wage rate to rental cost of capital. ? This shows the rate at which capital can be substituted for labor with no change in cost ? ?rwLK ????169。2020 Pearson Education, Inc. Chapter 7 41 Cost in the Long Run ?User cost can also be described as: ?Rate per dollar of capital, r ?r = Depreciation Rate + Interest Rate ?In our example, depreciation rate was % and interest was 10%, so ?r = % + 10% = % 169。2020 Pearson Education, Inc. Chapter 7 37 Cost in the Long Run ?Capital is either rented/leased or purchased ?We will consider capital rented as if it were purchased ?Assume Delta is considering purchasing an airplane for $150 million ?Plane lasts for 30 years ?$5 million per year – economic depreciation for the plane 169。2020 Pearson Education, Inc. Chapter 7 33 Cost Curves 0204060801001200 2 4 6 8 10 12O u tp u t (u n i ts / y r )Cost ($/unit)MC ATC AVC AFC 169。2020 Pearson Education, Inc. Chapter 7 29 Determinants of Short Run Costs – An Example ?We can conclude: LMP MC w??…and a low marginal product (MP L) leads to a high marginal cost (MC) and vice versa 169。2020 Pearson Education, Inc. Chapter 7 25 Determinants of Short Run Costs ?The rate at which these costs increase depends on the nature of the production process ?The extent to which production involves diminishing returns to variable factors ?Diminishing returns to labor ?When marginal product of labor is decreasing 169。2020 Pearson Education, Inc. Chapter 7 21 Measuring Costs ?Marginal Cost (MC): ?The cost of expanding output by one unit ?Fixed costs have no impact on marginal cost, so it can be written as: ΔqΔT CΔqΔV C MC ??169。2020 Pearson Education, Inc. Chapter 7 17 Fixed and Variable Costs ?Which costs are variable and which are fixed depends on the time horizon ?Short time horizon – most costs are fixed ?Long time horizon – many costs bee variable ?In determining how changes in production will affect costs, must consider if fixed or variable costs are affected. 169。2020 Pearson Education, Inc. Chapter 7 13 Prospective Sunk Cost ?An Example ?Firm is considering moving its headquarters ?A firm paid $500,000 for an option to buy a building ?The cost of the building is $5 million for a total of $ million ?The firm finds another building for $ million ?Which building should the firm buy? 169。2020 Pearson Education, Inc. Chapter 7 9 Opportunity Cost ?An Example ?A firm owns its own building and pays no rent for office space ?Does this mean the cost of office space is zero? ?The building could have been rented instead ?Foregone rent is the opportunity cost of using the building for production and should be included in the economic costs of doing business 169。2020 Pearson Education, Inc. Chapter 7 5 Introduction ?The optimal, cost minimizing, level of inputs can be determined ?A firm’s costs depend on the rate of output and we will show how these costs are likely to change over time ?The characteristics of the firm’s production technology can affect costs in the long run and short run 169。Chapter 7 The Cost of Production 169。2020 Pearson Education, Inc. Chapter 7 4 Introduction ?Production technology measures the relationship between input and output ?Production technology, together with prices of factor inputs, determine the firm’s cost of production ?Given the production technology, managers must choose how to produce 169。2020 Pearson Education, Inc. Chapter 7 8 Measuring Cost: Which Costs Matter? ?Economic costs distinguish between costs the firm can control and those it cannot ?Concept of opportunity cost plays an important role ?Opportunity cost ?Cost associated with opportunities that are foregone when a firm’s resources are not put to their highestvalue use 169。2020 Pearson Education, Inc. Chapter 7 12 Sunk Cost ?Firm buys a piece of equipment that cannot be converted t